Chase Chats Navigating Cash Flow
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Side note:
Energetic music plays.
Logos:
The Chase octagon symbol. Chase for Business
(registered trademark).
Text on screen:
Chase Chats Webcasts - Navigating Your Cash Flow.
On screen:
A woman with brown hair and glasses, Heidi Widom,
speaks to us remotely from a room with framed
diplomas hanging on the wall.
Text on screen:
Heidi Widom, Chase Management Division Manager,
Chase.
Heidi Widom:
Hello, everyone, and welcome to our Chase Chat,
Navigating Your Cash Flow. I am really excited
you're all here with us today, and you are going to
really leave with some great resources-- a lot of
new ideas, and really actionable ideas. My name is
Heidi Widom, and I manage the Northeast cash
management consultant team here at Chase. What my
team does, is we go out in the field, we meet with
our small business clients along with our bankers.
We discuss our clients' cash inflows, their
receivables, cash outflows, their payables, and we
always make sure that they are protected from fraud.
Introduction: 1:19
I've been at the bank for over 25 years, and the
last 11 of which I've spent with small businesses. I
really love visiting with small businesses. I love
meeting people. I love learning about what they do,
and really, the challenges that they face. As we all
know, cash flow is one of the biggest challenges
faced by small businesses today. We all know how the
world has changed since COVID-19. Everyone is out
there navigating uncharted waters, and really, you
need to make sure your business is in the right
position to face this time of uncertainty. If you're
experiencing fluctuations in your cash flow, you are
not alone. COVID has really highlighted the
necessity of having enough cash on hand to survive
when there's little or no revenue coming in-- and we
all know, for an uncertain amount of time. In fact,
according to the JPMorgan Chase Institute, 50% of
small businesses had only enough cash on hand to
cover less than 15 days of expenses.
On screen:
A slide labeled "Why Cash Flow?" provides
information regarding the importance of managing and
maintaining a healthy cash flow. The slide displays
a graph labeled "Distribution of cash buffer days in
25 metro areas." It shows the Median cash buffer at
15 days. It shows that 50% of small businesses had
fewer than 15 cash buffer days.
Side note:
Small print text appears.
Text on screen:
Cash buffer days measured from 2013 to 2017 in the
cross sectional sample.
Source: JPMorgan Chase Institute, April 2020.
Logo:
Chase for Business.
Heidi Widom:
And this pandemic has lasted a lot longer than 15
days. And as a result of that, we've developed the
suite of online tools to help you position your
business for success.
Text on screen:
cashflow.chase.com. Navigating Your Cash Flow - What
You'll Learn:
Visualize a year of cash inflows and outflows to
identify opportunities for improvement.
Analyze your inventory and vendor relationships to
decrease unnecessary expenses.
Optimize your workforce to increase employee
productivity and contributions.
Communicate with customers to collect payments and
broaden your base.
Evaluate the competitive landscape and how your
product, value and price compare.
Navigate slow times in your sales cycle.
Logo:
Chase for Business.
Heidi Widom:
So the site is called cashflow.chase.com. It is
really easy to use. And the best thing about it is
it's customizable for your business. So what you
will see is there are three main topics.
Understanding Cash Flow, which gives you an
overview. Increase Cash In-- you always want to make
sure you're getting cash into your business and
collecting it as fast as you can. Decreasing Cash
Out-- or as I always tell my clients, managing your
cash out. Making sure that you're spending less, and
you're also spending it more slowly. Each topic has,
really, five different modules in it. And I'm just
going to mention them quickly, because we're going
to get a chance to go into a little more detail.
There are videos. There are articles. We also have
case studies, interactive tools-- and really, what
we're going to highlight in today's session, are the
downloadable worksheets.
Text on screen:
cashflow.chase.com. Navigating Your Cash Flow -
Tools to Use: Downloadable Worksheets. Use these
frameworks to explore how to positively impact
inflows and outflows.
- Competitor Analysis;
- Customer Base Review;
- (and) Vendor Analysis.
Logo:
Chase For Business.
Heidi Widom:
What you'll be able to do is go on the site, input
the information specific to your company, and
actually gain some actionable insights. What could
you do? What could you take from that to make your
business more successful? One of the keys I just
want to mention, which we are going to be going
over, is the Business Cash Flow tool.
Text on screen:
cashflow.chase.com. Navigating Your Cash Flow -
Tools to Use: Interactive Cash Flow Tool. Create a
customized snapshot of how cash flows in and out of
your business:
- Based on your specific inputs;
- Visualize annual cash flow;
-
(and) see the impact of changes to inflows and
outflows.
Logo:
Chase For Business.
Heidi Widom:
This is going to help you create a customized
12-month snapshot of how cash flows in and out of
your business. This is really key, given the impact
we've seen from COVID, and from the ever-changing
market conditions. Now what I'd like to do, is
welcome Devon Briger and Amy Lai from the
Acceleration Project.
On screen:
Heidi shares a three-way split screen with Amy (a
black-haired woman with glasses) and Devon (a woman
with blonde hair and brown eyes).
Heidi Widom:
The Acceleration Project is a woman-founded,
woman-led organization, providing strategic and
tactical advice to small businesses with an emphasis
on supporting women and minority-owned enterprises.
Devon and Amy are here to walk us through a demo of
the tools and resources in the Navigating Your Cash
Flow program.
On screen:
Devon speaks remotely from her home.
Text on screen:
Devon Briger, Consultant, The Acceleration Project.
Devon Bringer:
Hi, everyone. I'm Devon, and thank you all for being
here today. Just a little bit about my background. I
founded a retail juice business in 2010. We expanded
our product line into superfood smoothies, and acai
bowls, and other healthy-for-you food products. I
recently had the opportunity for an exit, and thus,
I've joined TAP in order to hopefully be able to
pass along some of my small business expertise to
others.
On screen:
Amy speaks remotely.
Text on screen:
Amy Lai, Consultant, The Acceleration Project.
Amy Lai:
Hi. And I'm Amy, I'm also really excited to be here.
I've been a TAP consultant for about 18 months, and
I've been able to help small businesses just like
yours, including a cafe bakery and a dental
practice. I've been in financial services for over
30 years. And currently, I'm running my own
investment firm that I co-founded in 2011. And in
that capacity, I manage a portfolio of loans to
small businesses just like yours.
Heidi Widom:
Great. Thanks so much, Devon and Amy. We're so glad
you're here with us today to walk us through the
Navigating Your Cash Flow tool. Devon, can you tell
us how you use a cash flow statement and
projections?
Devon Bringer:
Sure. I used it to understand my cash position at
all times. And mostly, make operational decisions
based on it. Particularly the cash buffer, Heidi,
that you referred to in the introduction. Which,
again, is the number of days of cash on hand that I
have to cover my expenses if I don't receive any
revenue. This is my ability to weather a crisis, and
I need to be able to project what my cash balance
will look like into the future, so I don't run the
risk of being overdrawn. And now, with COVID-19,
this has never been more critical.
Amy Lai:
And what's really great about the tool is that I
think a business owner can use it to look at past
cash flows. And with that as a starting point, she
can really use it to plan forward. The tool can help
her project and visualize her cash flows. So now,
unless her company's revenues or expenses are
somewhat synchronized with revenues coming in before
expenses go out, an owner really needs to understand
the drivers of that cash-- inflows and outflows--
and do her best to manage both the size and the
timing of both.
Heidi Widom:
Yes. I hear that from our clients every single day.
And those are the same issues that our small
businesses are all grappling with. Now let's try to
bring the Cash Flow tool to life.
Amy Lai:
So we're actually going to use Devon's business as
the example. We'll spend most of our time on
operating cash inflows and outflows because in the
long run, a business needs to have positive
operating cash to be successful.
Devon Bringer:
So step one is to gather your businesses historical
data. If you or your accountant does not already use
a traditional cash flow statement, then gather your
bank statements, credit card receipts, point of
sales reports, and any other records of cash. This
information will help guide you to remember all of
the business's cash flows. As Amy mentioned, we're
going to take the example of my first full year in
business to show how to input historical flows. We
will begin with inflows. Operating inflows are
related to the cash you receive from sales of
products or services. It can also include cash you
receive from things like royalties or commissions.
On screen:
As Devon speaks a cursor navigates through the
online Cash Flow tool, which displays the text:
"What were your inflows for the past year?" It also
displays a series of drop down menus, marked:
- Category;
- Description;
- Frequency;
- Date Deposited;
- (and) Amount.
Business Cash Flow Tool: 8:17
Devon Bringer:
The Cash Flow tool allows you to split them between
a number of sales categories. You can enter the
frequency, if it is a fixed amount, or if it changes
over time. When my business started, my sales were
mostly online, and through direct deliveries to
customers. The retail component kicked in when we
opened up our first store, midway through the year.
As is typical of a startup, I also had financing
inflows that I used to start the business.
For our juice business, my business partner and I
both contributed money into the business. Some
businesses take out a loan, and when the cash is
received, that would also be considered a financing
inflow. For us, our cash contributions into the
business happened over the course of the year as we
grew. And the money was used to buy raw material,
equipment, furniture, and other things-- all of the
expenses that it takes to run a business.
Amy Lai:
That's right. Now some businesses might also have
investing inflows. Now that's cash that you receive
from selling equipment, or real estate that you
have, that your business owns. Or possibly, renting
out or subletting the real estate that the business
owns. In a less common example, when your business
maybe have made a loan to another business and
you're receiving interest or principal. Those are
investing inflows. You might not have this kind of
inflow every year, but you do still want to consider
them in your projections.
Heidi Widom:
Great. Terrific to really start to get organized, to
start using this tool. Now let's move on to
outflows.
Amy Lai:
Now operating outflows, Heidi, are what you
typically think they are-- they're the day-to-day
expenses of running a business.
On screen:
As Amy speaks a cursor navigates through the online
Cash Flow tool, which displays the "Outflow" screen.
The screen displays a series of drop down menus,
marked:
- Category;
- Description;
- Frequency;
- Month;
- (and) Amount.
Amy Lai:
For most businesses, the largest expenses tend to be
payroll, raw materials, or inventory, and rent. And
for other businesses that maybe don't have a store,
and they're not retail-oriented, it could be payroll
or lease payments on machinery. And don't forget,
there's a lot of other expenses I'm sure most owners
know-- things like marketing, delivery costs,
insurance.
So just like we did on the Inflow screen, you can
see on the Outflow screen, you can enter frequency,
if it's a fixed amount, or it maybe changes over
time. If it's monthly, or quarterly, or a one-time.
So like I said before, it obviously does not
surprise business owners that there are quite a
number of expenses to think about. Devon, for her
first year of business, also had investing outflows
since she opened the retail location. Her businesses
had to purchase physical assets, like furniture and
equipment, and did renovations on a space. There
were also lease payments that she had to make on
physical assets like a delivery van. These are
considered investing outflows.
Devon Bringer:
So an owner also should think about financing
outflows, and those would be outflows related to
paying back a bank loan, or a line of credit, or a
distribution back to owners in the form of
dividends, return on capital, or stock buy-back.
These could be lumpy for a small business, but the
timing and the amount should be considered when
you're going through this process. And once the
inflows and outflows are complete, you will see the
results on the Compare screen.
On screen:
The Cash Flow Tool's "Compare" screen appears,
displaying a cash flow summary for the year,
including a monthly break-down of total inflows and
total outflows. It also shows the entire year
balance.
Heidi Widom:
That's great, Devon and Amy. Thank you. It's really
great to actually see a full year of cash flows. So
tell me, when you have that information as a
business owner, how do you use that data for
planning?
Devon Bringer:
Well as you can look when you see the graphs...
On screen:
The monthly cash flow graph reappears,
showing:
-
inflows exceeding outflows in January, February,
April, and November;
-
inflows and outflows roughly equal in March, July,
August, and October;
-
and outflows exceeding inflows in May, June, July,
September, and December.
A pie chart shows the "Entire year inflow breakdown"
at 63% Operating and 37% Financing. Another pie
chart shows the "Entire year outflow breakdown" at
78% Operating and 22% Investing.
Devon Bringer:
...you can see the output. And that Cash Flow tool
really highlighted to me that I needed to dig deeper
into the numbers to understand the drivers of my
revenues and my expenses. As you can see from the
chart, my outflows in May, June, and July were
significantly higher than my inflows, which
decreased my overall cash balance. This tool would
be a framework for me to brainstorm on what I could
do the following year, to grow my revenues and cut
my expenses, so I could get closer to ending the
year with positive operating cash flows and create
less variability in my monthly outflows. There was a
lot of factors I needed to take into consideration
in order to increase my cash in and decrease my cash
out.
Heidi Widom:
Great. Thanks, Devon. I know there were some other
tools that I mentioned earlier on the
cashflow.chase.com website. So can you please walk
us through, maybe the competitor analysis worksheet,
next?
Competitor Analysis Worksheet: 13:36
Amy Lai:
Sure. So like Devon said, to think about increasing
your inflows, meaning your revenue, there really are
two variables to think about in every single
business. What you charge, meaning your price. And
how much you sell, or how much services you provide,
meaning your volume. Price times volume is your
revenue. So it's hard to really think about these in
a vacuum. So first is the spreadsheet that Heidi had
mentioned, that you can download from the Chase
website to help you think about your competitors--
On screen:
The Competitor Analysis tool appears, displaying
information and a graphic showing Value features,
Value rating, Price, and Price rating for "My
business" and eleven "Competitors."
Amy Lai:
--the Competitor Analysis worksheet. It is a
worthwhile exercise, as the insights can really help
an owner hone into her value proposition.
Devon Bringer:
So using this worksheet, the first thing that I did
was I listed out all of my competitors. And then I
listed out what characteristics of a successful
business in my market had. I looked at my principal
competitors to see what they were doing well, and
where they were differentiating. This exercise
highlighted to me where I needed to focus my efforts
to drive interest in my product. And I discovered
two key things my competitors were doing. One, they
were diversifying their product offerings. And two,
they were expanding their retail presence.
On screen:
A chart, broken into four quadrants, shows "My
Business" and "Competitors" price and value ratings,
with:
- Quadrant 2 as the overall highest rated;
-
Quadrant 4 as the second overall highest rated;
-
Quadrant 1 as the third overall highest rated;
- and Quadrant 3 as the lowest overall rated.
Side note:
"My Business" is positioned in Quadrant 2.
Devon Bringer:
As you can see from the chart, my pricing and value
were in the second quadrant, which is the highest.
aBut I had several competitors-- namely, LA Juice
Market and Juice Cafe-- that ranked higher in value
and higher in price. I also noticed that Ritual
Wellness ranked higher in value than my business, at
a 6, but was selling the product the same price of
$8. This process really forced me to think about my
product line expansion as a way of increasing my
average price, and to expand my retail presence to
better serve my customer base. Understanding your
competitive landscape is critical to your business's
success in staying with, or ahead of the trends in
the marketplace. I would recommend regularly
revisiting this worksheet to assess your position
amongst your competition, and make informed
decisions as the next steps to grow your business.
Customer Analysis Worksheet: 15:45
Amy Lai:
And to Devon's point, this is not a one-time, static
exercise. It really requires a good thought process
on an ongoing basis. Because your competitive
landscape, as you all know, changes all the time.
And then of course, once you generally understand
your competitive landscape, it's time to understand
your customers. And there is another tool on the
website called Customer Analysis worksheet. That's
really going to help guide you to think about who
your customers are and how best you can attract
them.
On screen:
The Customer Analysis Worksheet appears, listing
Existing Customers (the best customer and the
sustaining customer) and Potential Customers (the
look-alike customer and the aspirational customer.)
The chart offers areas to fill in custom information
regarding:
- Characteristics;
- Goals;
- (and) Outreach plan.
Devon Bringer:
This customer worksheet was also super helpful to me
in thinking about my customers and what was
important to them.
On screen:
The Customer Analysis Worksheet appears, now filled
in with information about Devon's customers.
Devon Bringer:
Breaking them down into the different categories
allowed me to segment them, and analyze different
ways of reaching each group. As a result, I
exploited their buying patterns and brainstormed how
I might impact those patterns. This approach further
supported the need for us to expand our product line
beyond just cold pressed juice, and to open up more
retail stores, particularly near gyms and
neighborhood areas, because that seemed to be where
my customers were spending their time. And we also
needed to focus on improving our social media
presence as well as our relationships with
influencers.
Heidi Widom:
Interesting, Devon. So after going through these
exercises, how did you determine who were your ideal
customers, and what's your competitive landscape?
Devon Bringer:
Well I found that my target customer really wanted
to come into a brick and mortar store and have more
choices than just juice. They were focused on
convenience as well as optionality, so it was
important for us to open up more locations and
expand our product line to superfood smoothies and
bowls. Now of course that will require an
investment. But on the other hand, it could also
reduce my shipping costs, as juices were expensive
to ship because of their weight, and the speed in
which they need to get delivered to the customer.
Heidi Widom:
Great. So let's change gears a little bit now. What
suggestions would you have to other small business
owners for ways for them to increase the amount of
cash coming into their business?
Amy Lai:
So Heidi, in addition to increasing the amount of
cash that's coming in, it's also important for
business owners to think about fast-forwarding the
timing of the cash that's coming in. And there's
actually a great resource on the cashflow.chase.com
website that outlines best practices for business
owners to consider how to improve their receivables
process, and ultimately maximize the cash on hand.
On screen:
The Chase for Business web page appears, labeled
"Maximize Your Cash On Hand." It displays
information under the headings:
- Current take: COVID - 19;
- The journey from contract to cash;
- Why map your process?
- How to map your process;
- Receivables Process Map;
- Activities;
- (and) Things to consider
Amy Lai:
So the way that I think a business should think
about it is that a business typically collects
revenue in a number of ways. It could be a cash
business. It could be a credit card-- you get credit
card revenue or you get checks. How does your
business collect revenue? Is your business mostly an
accounts receivables business? And by that I mean,
do you sell a product, or a service, but you might
not have received it yet because either you have not
invoiced your clients, or you have invoiced your
clients and they haven't paid yet? Maybe a call or a
reminder to that customer is enough to get that
payment.
If you looked through this receivable process map on
the website, it really helps you think about, and
hone in how to improve that process in a much more
efficient way. Take the time to really understand
your receivables process. And you can use these
pages as a resource when you're evaluating your
options in a holistic way.
Devon Bringer:
So Amy, this was really less of an issue for my
business, since my business was mostly a cash
business, so we didn't have a high amount of
accounts receivable. But we did have timing
mismatches on purchasing supplies, especially as
most of our inventory was perishables. So we really
had to work on keeping our inventory cycle very
tight.
Heidi Widom:
This is a perfect segue way for starting to talk
about business expenses. Devon, how did you think
about managing expenses for your business?
Devon Bringer:
Well since my business was a retail juice business,
my expenses were mostly in my raw materials--
fruits, and vegetables, and other add-ons-- and
those were expensive, as well as the payroll that it
took to sell the product and make the product. This
is likely typical for a small business. The largest
expenses are usually payroll, rent, suppliers, and
then things that you need for your inventory. So for
me, the first step was digging into my expenses and
determining whether they were sustainable on an
ongoing basis, and what I could do to reduce them or
delay them.
On screen:
A Chase for Business web page appears, labeled
"Decrease Cash Out." It displays information under
the headings:
- Current take: COVID - 19;
- Evaluate vendor relationships;
- Make the most out of your labor;
- Take a fresh look at real estate;
- (and) Control your spending on inventory.
Devon Bringer:
Now bear in mind, the example that we're talking
about represents my first full year of my business.
So as I grow my expenses, I'm growing my sales in
order to ramp up the business. The bulk of our costs
were raw materials, and our retail and manufacturing
labor. So that is where it made the most sense for
me to focus. A metric that I found useful in
analyzing my numbers was looking at my variable
expenses as a percentage of sales. You can calculate
this just by dividing your total cost by sales. This
metric allowed me to understand the correlation
between my sales and my variable costs. And in this
case, it highlighted to me loud and clear, that I
needed to reduce my raw material costs.
Amy Lai:
That's right. And so, evaluate your options from a
vendor perspective. You want to make sure that you
have vendors who are your partners, that are going
to provide to you what you need, and what you value.
Vendor Analysis Worksheet: 21:41
Devon Bringer:
Yes, Amy, that is right. And I will say, in our
early days of business, what we mostly cared about
was just getting the best quality products,
delivered to us as quickly as we could. But as we
started growing our business, we realized that we
needed to focus on cost and quality. I'm going to
walk you through an example using the Vendor
Analysis worksheet in the Navigating Your Cash Flow
program to outline my approach. Although quality
remained our most important variable because we were
selling a juice product, we decided that we needed
to rank the cost over delivery time, because we
really needed to reduce our costs.
On screen:
The Vendor Analysis Worksheet appears displaying
information regarding:
- Vendor name;
- Current annual spend with vendor;
- Small, medium, large, or potential vendor;
- Current service or product purchased;
- Product quality;
- Price;
- Timeliness of delivery;
- Weighted score;
- Potential action;
- (and) contact.
Devon Bringer:
The Vendor worksheet helped us look at our vendors,
and determine an approach for reducing our cost
without sacrificing quality, by focusing on our
highest rated vendors. This exercise also
highlighted to us that we had way too many small
vendors, but no one strategic relationship.
So we ended up identifying a couple of key vendors--
namely, Lakeside Gardens and Organic Vegetable-- as
our produce suppliers, and Portola Valley Packaging
and Promo Anywhere as our paper and packaging
material suppliers. This was based on their ratings,
and it allowed us to focus on creating a strategic
relationship with those suppliers. And as a result,
we were able to significantly reduce our costs. We
were able to negotiate better terms, and prices, and
delivery expectations. We ended up cutting several
vendors-- GL Alfieri Produce Paradise, US Paper and
Provisions, and American Labels, and we reduced our
purchases with the middle tier. This reduced the
number of suppliers we worked with, and thus reduced
the complexity of our ordering process, so we saved
money on labor from our purchasing manager.
Amy Lai:
Wow. This is just incredible work, Devon. Kudos to
you. Now based on the results of all of these
things-- the Competitor Analysis, Customer Analysis,
Vendor Analysis-- there were decisions that were
made to open more retail stores, diversify the
product offering, reduce and streamline vendors.
With all of this information, we're now going to
enter these assumptions, and what that looks like,
into the Business Cash Flow tool, to show you the
impact of making these changes.
On screen:
The Cash Flow Tool shows monthly break-downs of:
- Supplies;
- Payments to Suppliers;
- Payroll (and/or) Wages;
- (and)Payments of Freight.
Devon Bringer:
So doing this deep dive into the key drivers of my
business-- the competition, my customers, and my
vendors-- was critical for me in mapping out a plan
of attack for driving increased sales and reducing
my costs.
On screen:
The monthly cash flow graph appears, showing:
- inflows exceeding outflows in January;
- outflows exceeding inflows in February;
-
(and) inflows and outflows roughly equal in the
remaining months of the year.
Devon Bringer:
As you can see in the projections I set for the
budget year, it highlights the amount of money I
would need to secure to expand my product line and
open up a couple of more retail stores.
On screen:
A pie chart shows the "Entire year inflow breakdown"
at 83% Operating and 17% Financing. Another pie
chart shows the "Entire year outflow breakdown" at
87% Operating and 13% Investing.
Devon Bringer:
It also shows the positive impact that this would
have on my cash position, and the possibility of
growing my business into profitability-- something
that I clearly did not accomplish in my first year
of business. I will say that I did not have these
tools when I was running my business, but having
them certainly would have made it a lot easier. And
I learned a lot just going through the process of
inputting this information.
Heidi Widom:
That's great. Thank you so much, Amy and Devon. I
think really seeing how you actually use these tools
on the Navigating Your Cash Flow site and bringing
it to life for everybody in the audience has been
terrific. What I would really like to do is
encourage everyone-- all our small business owners--
to go onto the tool, and really play around, and see
what you could learn-- what insights you could get
for your business, and how this could help you
manage your cash position, and really help make your
business more successful.
Now what I'd like to do is take some questions from
the audience. The first question, "how would I
extend my timing on accounts payable?" That is
something I hear all the time, so I'm really curious
to hear. Amy, what are your thoughts?
Amy Lai:
Sure, Heidi. I understand that as well, and it's a
great question. It's important to manage your
accounts payable period. A longer average payable
period means that you can maximize your credit with
your vendors, which in turn means that you're
delaying your outflows, and taking advantage of
every single inflow that you have. Here are some
strategies. And obviously, they're all particular to
your individual business, but I think some of these
strategies should help across the board.
So first off, you should always discuss pricing and
payment terms with your vendors, because an extended
payable period obviously helps you with your cash
flow. So for example, ask if you can have 60 days to
pay even if that means forgoing the 30-day discount.
One example. Another example is to renegotiate the
due dates with your suppliers. So instead of paying
all, or most of your bills, say, on the first of the
month, or on the 15th of the month, try to stagger
them. Ask if you can set up a new payment date in
the middle of the month, or at the end of the month.
This will just help you break up the payments so
they don't all occur at the same time, and you have
a lot of outflows going out all within a number of
very short period of days.
Lastly, one suggestion is to set up an online
banking account to automatically pay your bills.
Paying your bills online would really help you not
only to track your payables, but maximize your
payment time frame. And again, Chase has great tools
for that. I even do that for my own small business.
So if you can negotiate payments on 60-day terms,
for example, you can just pay them on day 59, or
even 60, instantly, through your online account. The
longer you're able to hold onto your cash, the
longer you can afford to wait for your receivables
to be collected. Because sometimes you don't have
control over that.
Heidi Widom:
Some great tips, Amy. Thank you. Another question
that came in, "what are some early signs of cash
flow problem?" That is key. Devon, your thoughts?
Devon Bringer:
Yes, Heidi. That is really key. As we keep saying in
this session, that it's really important to
continuously track your cash flow so a cash flow
deficiency does not take you by surprise.
Understanding the warning signs of a potential cash
flow problem, and better planning out your working
capital, can help you prepare for tough times and to
weather the storm successfully. Some of the key
watch-outs are relying on big customers paying large
bills to get you through tough times, having too
many receivables and not being paid steadily, not
negotiating discounts with your vendors, having a
lot of short-term debt with large pay-downs, and
having too much inventory-- especially if your sales
are down.
Heidi Widom:
Great. Thanks, Devon. Let's take another question.
"How does cash relate to P&L?" We hear this all
the time. Amy, over to you.
Amy Lai:
Well it could be a very technical answer. But at the
end of the day, just bear in mind that you really,
ultimately need operating cash flow to be
successful. So the cash flow statement, from an
accounting perspective, is integrated with your
P&L by net profit. So if you look at a cash flow
statement, it starts, your first line item is net
profit. And this amount is used to then calculate
your cash flow from operations. What a cash flow
statement does is to show you the exact amount of
actual cash inflows and outflows, and tries to strip
away some of the non-cash items. Like depreciation,
for example. which ultimately is an expense, but it
doesn't necessarily mean that it's a cash expense
right away. So the income statement, or the P&L,
shows a company's revenues and total expenses,
including some of these non-cash expenses. So that's
really how it relates. But just keep in mind, you
still need to have operating cash flow that's
positive, in the long-run, for you to be successful
and have positive P&L.
Heidi Widom:
Great. Thanks, Amy. Oh, this is a great question.
"What is the perfect cash buffer?" This is a tough
one. I'm going to turn it over to Devon in a minute.
But as I said earlier, about 50% of small businesses
really have 15 or less days of cash buffer. We know
that is not enough. So Devon, what are some
thoughts?
Devon Bringer:
Well Heidi, you're absolutely right. This is a
really tough question. And there's really no perfect
cash buffer, because it really depends on your
business, as well as your comfort level around risk.
Many experts recommend that you have three to six
months worth of personal expenses saved up for your
own emergency fund, while businesses should aim for
a year's worth of expenditures. Now obviously, that
could be pretty unrealistic, especially for many
small business owners, so this might sound like a
big ask.
And in J.P. Morgan's research, this is something
that you should work towards as a goal. A good
process for figuring out this for your business is
to look back at the past year's financial inflows
and outflows, using the Cash tools, and determining
how much you spent in the past year, using those
inputs. This will give you a rough idea of how much
money you need to operate your business for a full
fiscal year. Then if you want to dig a bit deeper,
take into consideration your business's past
behavior.
For example, was last year a business-building year,
and expenses were higher than usual because of
investments into your business? Do you experience
predictable seasonal fluctuations? The amount of
cash reserve on hand may also fluctuate, through the
year, if you are a seasonal business. Also, what are
your business goals? If your big growth goals, you
will likely need more money for investments.
In the end, the amount of cash buffer you need
really comes down to what makes you most comfortable
as a business owner. Some people are more
conservative in financial matters and play it safe
with a bigger buffer. Others might feel more
comfortable with just six months worth of finances.
But clearly, Heidi, to your point, we probably need
more than 15 days.
Amy Lai:
Right.
Heidi Widom:
Great.
Amy Lai:
If I may chime in?
Heidi Widom:
Sure.
Amy Lai:
I think it's important to think about whether or not
you have some very high customer concentrations. If
you do, it would suggest that you may want to have a
longer cash buffer, because you have quite a bit of
exposure to particular clients. And if, for whatever
reason, they have issues, then you may very well
need to have a higher cash buffer to sustain any
issues that they face.
Heidi Widom:
Great. Thank you so much, Devon and Amy. A lot for
our small businesses to think about. Another
question. "Do you have any suggestions for cash flow
management for a seasonal business, where holidays
are the biggest bump in the year?" Great timing,
coming into this. Amy, some thoughts?
Amy Lai:
Yes. Especially since I'm sure, especially retail
businesses, now, are trying to build up their
inventory ahead of the holiday shopping season. so
if you run a seasonal business, it's important to
find alternative business options for the slower
part of the year. So some suggestions are, hire your
employees only during the busy times, develop your
banking relationship with your J.P. Morgan banker
that allows extra flexibility during those times.
Close your doors and reopen them next year for the
busy season-- develop those relationships with your
landlords, for example.
Now clearly-- going back to our previous
conversation-- this may very well be a business
where you need to have a longer cash buffer. Save
part of your earnings during those busy times to
cover expenses during the slower parts of the year.
And as I mentioned, like the landlord, arrange your
vendor relationships that allow you to make larger
payments when cash flow is high, and lower payments
when those cash flows are slower, during those times
of year. Find ways to be creative. Create off- eason
demand, such as partnership with businesses, deals,
during the slow times, with local customers. Or
maybe, moving more of those sales online at those
times.
Heidi Widom:
Thank you so much, Amy. And one more question, I
think, we'll take today. "Do you have any
suggestions for adjusting your pricing?" Devon, some
of what you said about your business. I'd like to
hand this one over to you, please.
Devon Bringer:
Yeah. This is a great question. One of the things
that we did was offering add-on services. We
actually had ability for our customers to add a
boost to their smoothies, which was a way for us to
increase our price. So offering add-on services is a
really easy way to increase your price. But you
could also consider a subscription- ased model for
prepayment. This works if you're offering a regular
service. And the advantage is that you have a secure
cash pool for future costs, as well as resource
scheduling. Another option is, instead of collecting
money via invoices, you could add credit card
payment option. This means more convenience to the
user, and more timely, and reliable payments, with a
regular schedule. When we did this, we actually
increased our price just a little bit to make up for
the extra charges. And we also offered discounts to
our cash paying customers because we wanted to make
it more attractive for them to pay cash.
Heidi Widom:
Another question came in. "Devon, how did you
negotiate better terms and prices with the vendors
that you prioritized, as you mentioned earlier?"
Devon Bringer:
Heidi, that's a great question. So in going through
the process, when we realized that we had way too
many small vendors, we actually then decided to work
on creating a strategic relationship with a couple
of vendors. And as a result, we increased our
purchase amounts with those vendors. So we were then
in a position to get to know them better, and
negotiate better prices, because we were purchasing
more volume from them.
Heidi Widom:
Great. Thanks. And another question. "How can I
negotiate with my clients to expedite receipt of my
accounts receivables?" Amy, you want to take that
one?
Amy Lai:
Sure. I think your best bet, Heidi, in terms of
expediting the receivables, is first off, make sure
that you actually have a receivables process in
place. Meaning, once your product is sold, or once
your services are provided, invoice, invoice,
invoice. Don't delay it. The second is potentially,
with your customers, offer discounts for them to pay
within an x period of day after your invoice has
been sent. So even if it's a small amount, a lot of
customers would be willing to pay you sooner, to the
extent that they feel they have a discount.
So I think that those two are the most obvious ways,
and the easiest ways, to achieve that. And
especially if you have customers that have the
ability to pay you online, set up an ACH, for
example. So that once your service is provided,
you've invoiced, and you set up a regular ACH to
take those amounts-- obviously, as long as you've
negotiated that with your clients.
Heidi Widom:
I love those suggestions, Amy. The only thing I
would add--we're always telling our clients, make
those invoices simple. Simple and clear invoice will
get paid much quicker. Also, I loved what you said
about some of the different tools to expedite the
payments. Also, we're telling everybody-- especially
in this COVID environment-- contactless and digital.
So yes, as you're negotiating your terms, make sure
you're also saying, how can I pay you? There's many
different ways available, so what would work best?
And use that when negotiating your terms.
Amy Lai:
That's great.
Heidi Widom:
OK. Thanks, everybody. So as we wrap up, what are
some closing thoughts? We've covered a lot in our
session today. So just really one key point for our
small business owners as they really look to manage
their cash position much more tightly this year.
Amy, do you want to go first?
Amy Lai:
So I'd encourage you to play around with the tool.
You know your business the best. Don't be gun shy
about that tool. It's extremely flexible, and
forgiving, and it's a great tool as analysis, to
look forward. Don't think about it just to use, to
see what your cash balances look like. Really use it
to project, and estimate what it can be, and what it
looks like in a bunch of different scenarios. That's
my one suggestion.
Devon Bringer:
So I would definitely agree with that. I would also
say that, actually having done this exercise for my
first year of business, it was very daunting to
start the process. But I think that, if you can
dedicate the time to sit down, to really go through
your process, and figure out what your inflows are
and what your outflows are, you're going to find the
time that you spend on this is very worthwhile. I
actually really enjoyed the process of thinking
about my vendors, thinking about my customers, and
figuring out ways that I could increase my business.
And as I mentioned before, I certainly would have
loved to have had these tools during my first year
of business. It would've been really helpful.
Heidi Widom:
That's great feedback, Amy and Devon. The only thing
I would add, is what I really love about these tools
is the whole scenario analysis. You can constantly
change it, right? Different things that are
happening in the market, different things going on
in your business, different things going on in the
lifecycle of your business. So what I always tell my
clients, is make sure you're staying on top of this,
on an ongoing basis. It's really not a one and done.
It's great to do it, but really keep it fresh, and
keep on top of it. And I always tell my clients to
review these things at least every quarter, every
six months, to just better be able to react to
what's going on in the market.
So thank you so much, Devon and Amy, for really
helping this come to life for us. There are some
great tools on this site. And we really hope that
all business owners-- everyone listening today--
will really get a chance to go in, use them, and see
it can help you both increase your cash flows,
manage your cash position, and of course, make your
businesses more successful.
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